RBI to maintain status quo on policy, raise GDP forecast: Mint poll | Mint

RBI to maintain status quo on policy, raise GDP forecast: Mint poll

The Central bank's monetary policy committee is scheduled to meet 6-9 December. (Pradeep Gaur/Mint)
The Central bank's monetary policy committee is scheduled to meet 6-9 December. (Pradeep Gaur/Mint)

Summary

  • A majority of the economists polled also expect RBI to maintain its inflation forecast, although it could sound hawkish due to recurring supply-side shocks

MUMBAI : The Reserve Bank of India’s monetary policy committee (MPC) is likely to maintain status quo on policy rates for the fifth consecutive time, 10 economists polled by Mint said, amid persistent inflation risks.

They also expect the committee to nudge up its GDP growth forecast for FY24, from 6.5% to 6.7-6.8%, following higher-than-expected growth in the September quarter (7.6% year-on-year).

A majority of the economists polled expect the rate-setting panel to keep the repo rate unchanged at 6.5%. As for its inflation forecast, they expect the committee to maintain it at 5.4% for the current financial year, although it could sound hawkish due to recurring supply-side shocks.

The committee is scheduled to meet for three days beginning 6 December.

The higher-than-expected Q2 growth number indicates the panel is unlikely to start cutting rates soon. Most economists expect the committee to cut rates only in the second half of the next financial year, depending on the stance taken by the US Federal Reserve.

“The focus of the policy will remain on ensuring the disinflation process and aligning inflation with the 4% target. Headline (consumer price index) inflation is expected to remain above 5% till Q1FY25, which is above the 4% target," said Gaura Sengupta, India economist at IDFC First Bank

“Hence, we expect RBI to remain on a prolonged pause into the middle of next year and don’t expect the stance to change anytime soon. MPC members are likely to continue to highlight risk from successive food inflation shocks."

Retail inflation eased to a four-month low of 4.87% in October–when the panel previously met–from 5.02% in the month prior. 

But food inflation, which accounts for nearly half of the overall consumer price basket, rose to 6.61% in October from 6.56% in September due to the volatility in the prices of vegetables and pulses. Core inflation has inched lower to 4.2%.

In November, RBI announced macroprudential measures to curb excessive lending by increasing risk weights on consumer loans, credit card exposures, and loans to non-bank financiers by 25 basis points. 

This will result in higher interest rates on these loans as banks and NBFCs will have to set aside additional capital towards these loans. The regulatory measure was viewed as a pre-policy step to allow RBI to curb excessive heating in a particular sector without having to risk the growth momentum in other sectors.

“With strong growth momentum, core inflation declining, and the global backdrop turning more benign, RBI’s policy optionality is widening," said Rahul Bajoria, managing director and head of EM-Asia economics, Barclays. 

“Still, we expect the bank to stay cautious, taking macro prudential steps to curb lending, while keeping an eye on supply shocks and potential second-order inflationary effects."

That said, the MPC is unlikely to announce further liquidity measures given that system liquidity continues to be in deficit mode due to rising cash demand during the festive season, higher credit demand, and foreign outflows. 

RBI has been injecting liquidity as part of its liquidity adjustment facility operations, averaging Rs1.4 trillion daily the past week.

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